Addressing the nation on May 1, 2021, as Uganda commemorated World Labour Day, President Yoweri Museveni crossly referred to Umeme Limited as “brokers” whose shareholders are only focusing enriching themselves by levying high prices on electricity.
This denies Ugandans a chance to utilise the already existing electricity.
Statistics indicate that only 24% of Ugandans have access to electricity despite the electrical grid covering the whole country, yet Uganda exports electricity to its neighbouring countries in East African Community.
Umeme is charged with distribution of electricity in Uganda.
The President’s Labour Day remarks over electricity distribution costs sent shockwaves among Umeme’s shareholders and administrators who expressed concerns during an annual general meeting 6 days after his outbursts saying the rhetoric would impact on the company negatively and further wane Umeme’s chances of renewing its contract it has been pushing for close to 3 years now.
Umeme’s 20 year concession will expire in 2025. The President has so far expressed no readiness to renew it.
Umeme’s woes started three years ago when Museveni issued a volatile missive to Minister of Energy Ministry to source a new company to distribute electricity immediately after Umeme’s contract ends.
In his April 2018 letter, Museveni questioned how Umeme’s technical losses remained high at 17% yet the firm claimed to have invested $500m infrastructure to address distribution hitches.
This was at a time load shedding had become part of Umeme’s services.
After Museveni’s letter, Umeme rectified power blackouts but never addressed the challenge of high tariffs.
Currently, a unit of electricity costs shs 755 shillings.
Energy experts insist that, Umeme is overpricing the citizens. They suggest that a unit should relatively cost shs 288 plus shs 28 as taxes.
But shockingly, Ugandans pay extra shs 245 to Umeme on a unit as taxes, amounting to shs 1000 per unit.
State House Meeting
In April, as government through Ministry of Finance listed priorities and prepared the budget, President Museveni who is the defacto Minister of Finance was concerned with how Uganda kept spending billions of money to general power which remained unused.
Museveni summoned specialists in the energy sector both in and out government including external consultants.
Before the meeting, according to a source, he had been equipped with facts on why Umeme was making more harm that good and was only interested in making and repatriating profits without considerably thinking on how to grow the sector.
“Umeme seems very much satisfied with the only 24% demand for power.
Umeme aims at milking this portion of customers instead of widening its supply base by inviting new clients on board,” said a source who was part of the meeting.
The experts maintained that the high tariffs scare away more clients. This affects the tax base.
It should be noted that only 1 million Ugandans out of 42 million pay taxes.
With many electricity generation sources including hydropower dams, solar farms, geo thermos and thermos generators which have been installed Uganda currently produces 1,200 megawatts of electricity.
After the completion and commissioning of the biggest power dam Karuma, potential production will stand at 1,800 megawatts.
Whereas supply potential is fast rising, and whereas new connections to the distribution grid are also rising faster, peak demand is stagnant. Current peak demand is 650 megawatts, compared to supply that double the demand level.
It is against this backdrop that Museveni asked, “where is the problem and what can be done to solve this problem.”
Experts told Museveni the only remedy is for Umeme to reduce its higher rates.
Museveni heard that every 1% reduction in the electricity tariff, there would be a corresponding increase in effective demand by at least 2.7%.
“That it would require approximately a 2.5% increase in effective demand for electricity for the economy to grow by at least 1% point in terms of GDP growth rate,” a source privy to details of the meeting said.
The meeting further heard that, if indeed it is true that Umeme has hugely invested in infrastructure as it claims, with modern transmission and distribution network it would lead to a reduction of the tariff by over 40%.
“Using the quantitative relationship between electricity tariffs and economic growth above, this would push Uganda’s demand for electricity to over 3000 megawatts in about 36 months’ time,” experts argued.
And therefore a reduction in the tariff would lead to accelerated demand for electricity and this automatically justifies construction of new hydro power dams like Ariang (330 megawatts), Chiba (400 megawatts) and Ayago (833 megawatts) whose feasibility studies are complete.
However, erection of these dams has stalled because of constrained demand.
Museveni further learnt that if up to 40% of the current tariff is reduced, Uganda’s effective demand for electricity would rise by 29% in the 1st year and thereafter continue to grow by an average of 32% per annum.
This would drive GDP growth to 12% in the first year and growth rate in GDP would be sustained for the next 10 years.
The experts further argued that real GDP growth and employment is boosted mainly by SME’s and cottage industry and not industrial parks and that all investments in the two have had a failure rate of 75% in their first year of operation mainly due to operational costs led by inordinately high electricity tariffs, interest rates and transport cost.
Given the above insights, the President has since maintained a status quo on Umeme’s concession while he sources for a fresher firm(s) to take over from Umeme as long as they are in agreement to offer cheap power to Ugandans.
Museveni, earlier this year said that because industries are mostly affected by Umeme’s exploitation, government is considering bypassing Umeme and distributing power directly to the industries.
Efforts to reach Umeme MD Selestino Babungi for a comment about Museveni’s position remained unsuccessful as he couldn’t pick our repeated calls.
Umeme spokesperson Peter Kaujju was not available for a comment.